Bally Creditors Could Get Casino-hotels In Debt Plan

Bally Manufacturing Corp. revealed Tuesday a debt restructuring plan under which it would give up ownership of, but continue to manage, its two casino-hotels in Nevada.

If the plan is approved, Chicago-based Bally could take about $413 million in debt off its balance sheet and turn its energies to curing debt problems of the parent company and to operating its Atlantic City, N.J., casino and health-club subsidiaries.

Arthur Goldberg, Bally chairman and chief executive, said the plan calls for his firm to run the Nevada properties under a multiyear management contract. He said the contract includes financial incentives for Bally pegged on the casinos` growth prospects, but he declined to elaborate.

The proposed restructuring, he said, ``is a good deal for Bally and a good deal for bondholders.``

It remains to be seen whether the deal is good for all three classes of creditors of Bally`s Grand Inc., the Nevada subsidiary that operates the casinos in Las Vegas and Reno.

A committee representing the largest class of creditors has agreed in principle to the plan. That class is holders of the $316.5 million of outstanding Bally`s Grand 11 1/2 percent first mortgage notes due April 15, 1996.

Bally said it will seek approval of the plan from other creditors and Nevada gaming regulators. The ability of other creditors to hold out for better terms may be limited if, as it appears, the support of the first noteholder allows Bally`s Grand to file a ``prepackaged`` reorganization plan in U.S. Bankruptcy Court.

To file a ``prepackaged`` plan, a company must have the approval of holders of at least 50 percent of its creditors with at least two-thirds of the total amount of debt. If the court approves the plan, its terms can be imposed on dissenting creditors.

Goldberg said Bally`s Grand intends to file a prepackaged plan, but didn`t indicate when or where.

He said parent company Bally doesn`t plan to file for Bankruptcy Court protection, and he denied a recent published report that Bally is considering moving from Chicago to New Jersey, where Goldberg is based.

Goldberg said holders of the first mortgage notes include Reliance Group Holdings Inc., First Executive Corp. and life insurance subsidiaries of Long Grove-based Kemper Corp. A Kemper spokesman said his firm`s subsidiaries hold $20.5 million face amount of the notes.

The other two classes of Bally`s Grand debt are the $84.6 million of 13 percent second mortgage notes due Sept. 1, 1996, and the $11.7 million of 12 percent senior subordinated debentures due 1996. Efforts to reach spokesmen for those creditors were unsuccessful.

In 1986, Bally purchased the former MGM Grand casinos in Las Vegas and Reno from Los Angeles billionaire Kirk Kerkorian for $451.9 million and the assumption of about $112.2 million in debt. The two properties have been hurt by increased competition and the cost of major renovations, and last fall began falling into default on their obligations.

Bally also owns two Atlantic City casino-hotels that aren`t involved in the Nevada restructuring plan.

Under the plan, Bally`s Grand would become a separate company and all creditors would exchange their debt for a new issue of 11 1/2 percent first mortgage notes ``having a cash-flow interest component and being secured by additional currently unpledged assets of Bally`s Grand.``

In the swap, holders of the existing first mortgage notes would receive an equal face amount of the new debt securities, but the other creditors would receive a substantially reduced face amount of the new securities.

Goldberg said creditors also would receive equity in the new company. It couldn`t be determined whether the creditors would receive all or part of the equity.

Goldberg said the Nevada casinos would be helped by the restructuring because they would be able to devote more cash toward expansion and other improvements and less toward servicing debt.